When it comes to starting a new business, you typically have two options for financing. First, there are debt-based options, such as loans, credit lines, etc. Second, there’s equity financing, which is totally different. In this article, we will take a look at this method of financing and see if it’s right for you.
What is Equity Financing?
This is a method of raising funds in which the business owner sells shares of the company in exchange for capital. This is a common method of funding for both start-ups and established companies.
How Does it Work?
Each share sold, typically in the form of stocks, is a single unit of ownership in the company. Therefore, if your company has 2,000 shares and you own 1,000 of those, you have 50% ownership of the company. When an investor gives you money in exchange for these shares, they become a shareholder.
Types of Equity Financing
There are several types of equity financing:
Venture Capital Firms
Advantages and Disadvantages
As with other forms of financing, equity financing comes with both advantages and disadvantages.
The advantages are:
No repayment required
Receive valuable advice on your business
Large amounts of funding available
On the other hand, the disadvantages are:
You give up partial ownership
Investors have some control
Hard to get for most small businesses
Basically, while equity financing can potentially be a smart move for both start-ups and growth financing, it’s not going to be right for everyone. Before you decide that you want to go this route, take some time to do you research and contact JHF Capital for some sound financial advice. If you decide this is the best route for you, make sure you completely understand the agreement before working with any investor.